Thursday, May 22, 2014

High Rent is Public Policy

Let's say some politician wants to raise your taxes and give that money to a group of millionaires so they can make tens of millions of dollars off a transaction instead of just several million dollars that they could make anyway?

Would you vote for that politician?

What if the transaction in question includes illegally destroying millions of dollars worth of historic properties and replacing it with a new illegal property worth even more millions of dollars.

Would you start feeling like you're getting the short end of the deal?

I wrote about this the other day, and everything I've seen since then only reinforces my belief that the developers of this project are getting one over on the property tax payers and rent payers of New Orleans. When city land policies create incentives that reward real estate speculation over getting properties back into commerce, what you end up with are developers who buy up valuable properties and neglect them. Why spend money to fix a place up now when you can wait, let it fall apart, and build a $100 Million hotel in its place? The term for this is "demolition by neglect," and while some penalties exist for people who do that, the penalties aren't usually enough to discourage this type of behavior.

Especially if the payoff is a $100 Million hotel.

But just how much does this affect the average property tax or rent payer in New Orleans? In the first case, it moves the tax burden from one property onto another. If developers are sitting on valuable land and letting it deteriorate, that land isn't as valuable as it could be. As the years go by, the property continues to deteriorate, and the developer's property taxes on that valuable parcel actually GO DOWN. Since property taxes go to pay for things like street paving, streetlights, transit service, Fire Departments, Police Departments, sewer and water lines, parks, public schools, 911 service, and other services and amenities that increase a community's standard of living, those services end up suffering when there isn't enough money to pay for them. Add on things like consent decrees, and your city has to raise property taxes to make up the difference. You've got to pay for those somehow, and you do that by raising property taxes. When property taxes go up, landlords have to charge more in rent to cover the increases.

Next up, you've got the issue of artificial scarcity. The more real estate speculators and developers sitting on deteriorating property means there's less property for things like housing and businesses. Supply and demand tells us that if there's less of something in demand, the price of that goes up, too. That further compounds the problem through additional increases in property taxes as working properties become more valuable and accrue higher tax liability. This leads to increases in rent as landlords raise rent to cover increased costs, and now you're adding to the cost of goods and services as businesses have to charge more to cover the cost of their rent increases.

Rhetorical question: Y'all know any cities that have trouble delivering public services, despite having really high property taxes, rising rents, and restaurants charging $12 for a cheeseburger?

Just how much are you paying out of your pocket so the rich can get richer? That's a question I don't know how to answer, but I found some clues on the internet that help me put it into perspective. The first tool is an online portal that lets you search public property tax records. Using this, we can see how valuable the corner of Canal & Tchopitoulas is according to public record. With this tool, you can see what the land + building are supposedly worth, you can see the assessed value (what the building is taxed on). After finding that out, I've run the values through The Lens property tax calculator to see what the owners of this land might be paying in property tax (this property is in the Downtown Development District, so I'm not sure if that's a break or an upcharge). Just an estimate based on the following info.

My numbers say that's $38,647 a year. For the whole block. I bet the t-shirt & liquor shop on the corner pays for that in a month during Carnival.

Sounds like a lot at first blush. But keep in mind where these properties are located. This is right down the street from the Riverwalk, Ferry Terminal, the "most valuable property in the city" WTC. (Remember when developers estimated condos in the WTC may go for $360 to $600 per square foot? There's a reason folks are fighting for a piece of that pie.) According to Latoya Cantrell, "this site could host a landmark development that would produce millions in tax dollars and spur further development." Put it this way,do you think the owner would offload 105 Tchop if you offered him $350,000 for it? These properties are far undervalued, even if they need some work.

Based on my own generous (and completely uneducated) estimates this week, the potential value of renovating these buildings into 2 bed 2 bath condos produces property worth $16,000,000. That's a property tax value of around $238,000 a year, and that did NOT include developing the parking lot or t-shirt shop. We'll call that the high end.

But we don't have to look at my uneducated numbers, we can go right back to the assessor's website and start looking around the block to see what nearby buildings are worth. Hell, just using the values on one side of the block (422 Canal) should give you an idea of what the other 4 buildings could be worth. If they were only comparable to the highest value building in the group, the property tax for the set would be upwards of $80,000. Again, that's not including anything put on the parking lot.

Adding insult to injury, the line sold to people is that those pesky preservationists and city bureaucracy are blocking development this city desperately needs! They'd rather have falling down buildings than fancy hotels! Back in reality, fixing up the existing properties would earn the owner millions of dollars right now. The only thing keeping those buildings falling apart is the fact that, when they finally do fall apart, the city will throw the zoning restrictions in the trash can in exchange for a shiny new hotel.

How did I figure out how much this was costing me? Your mileage may vary, but I started by looking up where I lived and comparing the numbers. I started looking at other properties around town I'm familiar with. I looked up real estate prices on Zillow to see how much homes in my neighborhood were selling for, and comparing the asking price of those homes against the tax record value of a four story, historic building on the corner of Canal & Tchopitoulas. Which did I think could command more dollars on the open market? I have my answer:

Somebody else is making millions while I'm paying higher rent for streets full of potholes.


Greg Beaman said...

If you have the time and/or inclination to hoof it down to 1340 Poydras, you can find the actual (instead of estimated) values of your relevant properties in the 4th floor Conveyance Office & Mortgage Office or the 5th floor Land Records Office. You can pull the acts of sale which show the actual price paid for the properties in question.

Cousin Pat said...

Thanks for the suggestion. I figured the real deal would be in a physical office somewhere, and I'm sure there'd be a lot of good information that someone could track down in public records.

One thing I'm trying to do with these posts is to get people thinking about issues like this, because I think they are at the core of many problems this city faces right now. If enough people start looking up property tax liabilities across this city, I think there will be a greater understanding of who is really paying for what around here.